What Is Bookkeeping? A Small-Business Owner's Guide

Bookkeeping is an integral part of your business's finances. It allows you to keep a proper record to file for tax returns at the end of the financial year. Moreover, you can get relevant information that helps you make sound decisions.

While there is inherent knowledge available about bookkeeping, most business owners don't have a clear idea about it. So, to help you out, we will discuss bookkeeping and its other key aspects.

Bookkeeping: Brief Overview

Bookkeeping refers to the proper documentation of the financial transactions for a business. You can do it either daily or once a year, according to your preference. An important thing to note about bookkeeping is that it's based on double-entry accounting theory.

It means that accountants need to record the transactions in two places, the ledger, and the journal. Next, businesses prepare a trial balance where both books are balanced monthly before preparing financial statements.

Bookkeeping Terminologies

Accountants or bookkeepers use certain terms and words that a business owner might not be familiar with. You might encounter the following terms when working with an accountant or bookkeeper.

· Revenue: Money generated through sales of goods or services

· Reconciliation: The method of checking the balance of particular accounts

· Liabilities: The loans and debt that the business owes

· General ledger: It includes the assets, liabilities, equity, income, and expense of your business.

· Expenses: The overheads of the business

· Equity: Equity refers to the owner's investment in the business

· Cost of goods: The expenses your business incurs to produce any relevant goods or services

· Assets: All the things that the business owns

What Does Bookkeeping Entail?

Bookkeeping involves different things that accountants perform. Businesses that operate on a large scale have a more complex bookkeeping process than SMEs. Usually, small businesses would have to deal with the following tasks.

Data Entry

Data entry refers to compiling and recording all business transactions for your business. Technological advancements have made it easier for businesses to record transactions. However, it isn't just limited to entering numbers in software since it includes:

· Source documents to find out about the transactions

· Identify and classify transactions in the right categories

Reconciling Transactions

Another important element of bookkeeping is balancing your books at the end of every accounting period. You would also have to reconcile the following accounts:

· Loan accounts

· Credit card

· Bank account

· Accounts receivable

· Accounts payable

Moreover, you would have to prepare any adjusting journal entries to record unusual transactions. Some businesses also require professionals to review financial statements for accuracy and completeness.

Managing Payments

Bookkeeping also includes the office management tasks, such as sending invoices to customers, paying vendors, and handling the payroll. However, the bookkeeper doesn't need to handle all these tasks since anyone can handle accounts receivable, accounts payable, and payroll in your company.

Wrapping Up

Bookkeeping is an integral part of accounting since it helps you keep a proper record of your transactions. So if you’re looking to learn about the bookkeeping process in detail, you can sign up for our platinum business financial coaching programming today.